The Fed Blog

Thursday, August 29, 2013

Stock Prices & the Price of Crude (excerpt)

In the past, more often than not, the S&P 500 was positively correlated with the price of Brent. That’s because the price of oil is highly correlated with other industrial commodity prices. When the price of oil is rising along with other commodity prices, the global economy is growing at a healthy pace. That’s bullish for stocks.

This year, industrial commodity prices have been relatively weak. In this environment, rising oil prices aren’t necessarily bullish for stocks. On the contrary, they can be bearish if they spike up as a result of a geopolitical supply shock. This explains why the S&P 500 Energy sector has been a laggard this year, even though oil prices have been mostly rising since May 1.

Today's Morning Briefing: Large Speculators in Oil. (1) Middle East commotion pushing oil prices higher. (2) Large speculators have been hoarding crude oil futures contracts since start of Arab Spring. (3) They currently own equivalent of all US oil stocks. (4) From mini-correction to full-blown one? (5) Lots of investment advisors in correction camp, and much fewer bulls. (6) Tracking the relationship between stock and oil prices. (7) Time to overweight underweight-rated Energy? (More for subscribers.)

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ABOUT: Dr. Ed Yardeni is the President and Chief Investment Strategist of Yardeni Research, Inc., a provider of independent investment strategy and economics research. This blog highlights excerpts from our research service, which is designed for investment and business professionals.

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